Based on the Fed’s Williams, excessive market costs are justified by financial progress and low rates of interest
John Williams, president of the New York Federal Reserve, said Friday that high prices for stocks and other assets are justified in the face of a growing economy and a low interest rate landscape.
Given that stocks hit new heights in valuations that have not been seen in decades and corporate bond yields plummet, the central bank official said he was not concerned about current pricing.
“Market participants and investors around the world are looking ahead this year and looking into an economy that will hopefully have a fairly robust recovery and expansion for the next few years, which would support stronger valuations,” said CNBC’s Williams Steve Liesman during an interview on “The Exchange”.
Key averages have managed to build on 2020 earnings despite some nerve-wracking volatility.
The Fed’s policy of low interest rates and continued asset purchases is often cited as a driver of risky asset prices. Earlier in the day, the Fed’s bi-annual monetary policy report to Congress found that “asset valuation pressures have returned to, or returned to pre-pandemic levels in most markets, including stocks, corporate bonds and residential property markets surpassed this “.
While Williams did not commit to any specific future course for the central bank, Williams said the environment is likely to remain accommodative.
“I think the fundamental drivers are investor optimism that the US and global economies will recover and expand more strongly, an expectation of low interest rates well into the future,” he said. “Together, these result in high asset ratings.”
Williams also addressed the high monetary and fiscal incentives given during the Covid-19 pandemic. He said he wasn’t worried that policymakers were doing too much despite an economy that seems to oppose previous predictions for a slow start into 2021.
Treasury Secretary Janet Yellen, a former Fed chairman, told CNBC Thursday that aggressive incentives were still needed.
“At the moment the economy still has some ways to go back to maximum employment and we still have some ways to go back to our 2% inflation target,” he said. “So I’m not really concerned about the financial support being excessive right now or anything. What I really want to see is an economy that will get back to full strength as soon as possible.”